Question 1

Which of the following is a reason why a firm would not engage in price discrimination?
A)Price discrimination is illegal in some western states and the owners of firms in these states face civil or criminal prosecution if they engage in price discrimination.
B)Some firms are not able to segment the market for the products they sell.
C)Some firms do not want to violate the law of one price.
D)The transactions costs associated with selling the product exceed the price of the product.

Accepted Answer

The answer of Which of the following is a reason...

Question 2

If a firm knew every consumer's willingness to pay and could prevent arbitrage it could charge every consumer a different price.This practice is known as
A)first-degree exploitation,or perfect price discrimination.
B)maximization of producer surplus,or perfect price discrimination.
C)first-degree price discrimination,or perfect price discrimination.
D)first-degree transfer of consumer surplus,or perfect price discrimination.

Accepted Answer

Perfect price discrimination occurs when a firm charges every consumer a different price based on their willingness to pay. This allows the firm to capture all consumer surplus and maximize profits. However, in order for this to work, the firm must have complete information about each consumer's willingness to pay and be able to prevent arbitrage (resale at a lower price). This type of pricing strategy is also known as first-degree price discrimination.

Question 3

In which market structure is it not possible to practice price discrimination?
A)perfect competition
B)monopolistic competition
C)oligopoly
D)monopoly

Accepted Answer

In perfect competition, all firms sell an identical product and there are many buyers and sellers in the market. Due to the high degree of competition, no single firm has the ability to charge different prices to different buyers, as buyers can easily switch to other sellers offering lower prices. Therefore, price discrimination is not possible in perfect competition. However, price discrimination can occur in monopolistic competition, oligopoly, and monopoly market structures.

Question 4

Price discrimination is the practice of
A)charging different prices for the same good when the price differences are not due to differences in cost.
B)charging different prices for the same good when the price differences arise because of differences in cost.
C)charging different prices for different qualities of a product.
D)charging higher prices for brand-named goods and lower prices for generic versions of the goods.

Accepted Answer

Price discrimination occurs when different prices are charged for the same goods, but not due to differences in cost. This practice is typically used to increase profits by charging a higher price to customers who are willing to pay more, while also attracting price-sensitive customers with lower prices.

Question 5

Which of the following is necessary in order for a firm to successfully practice price discrimination?
A)The firm must practice product differentiation.
B)The demand for the firm's product is inelastic.
C)The firm must be able to segment the market for the product.
D)The firm's transactions costs must be zero.

Accepted Answer

In order to successfully practice price discrimination, the firm must be able to segment the market and identify different groups of consumers with different price elasticities of demand. This allows the firm to charge each group a different price based on their willingness to pay. The other options listed may be helpful for price discrimination, but they are not necessary.

Question 6

Price discrimination is a rational strategy for a profit-maximizing firm when
A)it is possible to engage in arbitrage across market segments.
B)it is not possible to segment consumers into identifiable markets.
C)there is no opportunity for arbitrage across market segments.
D)firms want to increase the amount of consumer surplus received by its customers.

Accepted Answer

The answer of Price discrimination is a rational strategy for...

Question 7

The prices college students and faculty members pay for Apple computers are lower than the prices Apple charges on its Web site and in retail stores.Apple charges lower prices to college students and faculty members because
A)college students and faculty members have a more elastic demand for computers than the general public.
B)Apple can deduct from its federal taxes some of the costs of the computers it sells to college students and faculty members.
C)college students and faculty members have a more inelastic demand for computers than the general public.
D)college students and faculty members typically buy more supplies from Apple (print cartridges,paper,etc. ,)than the general public.

Accepted Answer

The answer of The prices college students and faculty members...

Question 8

A price-discriminating firm charges the highest price to
A)the group with the largest demand.
B)the group with the most elastic demand.
C)the group with the least elastic demand.
D)the group with demand that is unit elastic.

Accepted Answer

A price-discriminating firm will charge the highest price to the group with the least elastic demand since these consumers are less likely to be deterred by a price increase and more willing to pay the premium price.

Question 9

One reason why airlines charge business travelers and leisure travelers different prices is
A)business travelers fly according to schedules that are planned months in advance.Many leisure travelers buy their tickets at the last minute.
B)business travelers usually travel alone.Leisure travelers often fly with friends and family members;therefore,they have a more inelastic demand for airline tickets than business travelers.
C)business travelers fly more often than most leisure travelers.As a result,their employers are able to bargain with airlines for lower fares than leisure travelers pay.
D)business travelers often have inflexible schedules and have to travel on a particular day.The opposite is true for leisure travelers.

Accepted Answer

Business travelers often have specific travel requirements and less flexibility in their travel plans, so airlines can charge higher prices for their tickets. Leisure travelers, on the other hand, often have more flexibility in their travel plans and can shop around for the best deals. Therefore, airlines charge different prices for business and leisure travelers based on their respective travel patterns and demand.

Question 10

Bubba's Hula Shack bar and bistro has begun giving customers who can show proof that they arrived at the establishment by public transportation a 10 percent discount on their total bill.All else equal,customers who arrive by public transportation to take advantage of Bubba's Hula Shack discount have a ________ for the services of the establishment than customers who drive to the establishment.
A)higher price elasticity of demand
B)lower price elasticity of demand
C)higher price elasticity of supply
D)lower price elasticity of supply

Accepted Answer

Customers who arrive by public transportation have more options for transportation and may be more sensitive to price changes, making them more price elastic. Therefore, they are more likely to respond to discounts than customers who have already committed to driving to the establishment.

Question 11

Arnold Marion,a first-year economics student at Fazer College,was given an assignment to find an example of price discrimination and present it to his class.When asked for his example Arnold said "I went to a Milwaukee Brewers baseball game with my cousin last week.We paid $25 each for our seats in left field.My aunt and uncle paid $50 each for their tickets;they sat five rows behind the first base dugout.This is an example of price discrimination since we paid different prices for the same product,and the differences were not due to differences in costs." How would Arnold's economics instructor assess Arnold's example?
A)He would agree with Arnold that he had found an example of price discrimination,but would add that arbitrage would occur if ticket scalpers sold Brewers tickets for more than the prices Arnold and his uncle paid.
B)He would disagree with Arnold's example because the $25 seats and the $50 seats were not the same products.
C)He would agree with Arnold that he had found an example of price discrimination and would explain that the elasticity of demand for Brewers tickets is different for Arnold and his uncle.
D)He would disagree with Arnold's example because there were differences in transactions costs for the $50 tickets and the $25 tickets.

Accepted Answer

The answer of Arnold Marion,a first-year economics student at Fazer...

Question 12

Which of the following is not an example of price discrimination?
A)Adobe Systems offers software at discounted prices to students and faculty at K-12 and university levels.
B)Unlike foreign tourists,citizens of Cambodia are exempted from paying an admission fee to the temples of Angkor.
C)Senior citizens may purchase special fare tickets for public transportation that are not available to others.
D)Buyers at an automotive parts store receive a discount for bulk buying because the store is able to pass on to its customers some of the lower average cost for producing large quantities.

Accepted Answer

The answer of Which of the following is not an...

Question 13

Consumers who ________ will be more likely to buy goods in outlet malls at a lower price,while consumers who ________ will be more willing to pay full price in regular stores.
A)are less price-sensitive;are more price-sensitive
B)are more status-conscious;are less status-conscious
C)have high levels of wealth;have low levels of wealth
D)are more price-sensitive;are less price-sensitive

Accepted Answer

Consumers who are more price-sensitive are more likely to prioritize finding lower prices regardless of the shopping environment, while consumers who are less price-sensitive will not be as compelled to seek out discounts and may prefer the convenience or perceived quality of regular stores.

Question 14

If Mort's House of Flowers sells one dozen roses to different customers at different prices,economists would consider this an example of
A)price gouging.
B)rational ignorance.
C)arbitrage.
D)price discrimination.

Accepted Answer

This scenario describes price discrimination, as Mort's House of Flowers is selling the same product (one dozen roses) at different prices to different customers based on their willingness to pay.

Question 15

Which of the following is not a requirement for a successful price discrimination strategy?
A)A firm must have the ability to charge a price greater than marginal cost.
B)Some consumers must have a greater willingness to pay for the product than other consumers,and the firm must be able to know what prices consumers are willing to pay.
C)The firm must be able to prevent arbitrage.
D)Transactions costs must be the same for all consumers.

Accepted Answer

Transactions costs being the same for all consumers is not a requirement for a successful price discrimination strategy. In fact, some degree of transaction costs differences may be necessary for successful price discrimination, as it can help prevent arbitrage between different consumer groups. The other choices are all important requirements for successful price discrimination, such as charging a price higher than marginal cost, knowing consumers' willingness to pay, and being able to prevent arbitrage.

Question 16

Perfect price discrimination is also known as
A)monopoly.
B)first-degree price discrimination.
C)third-degree price discrimination.
D)yield management.

Accepted Answer

Perfect price discrimination is also known as first-degree price discrimination, where a monopolist charges every customer the maximum price they are willing to pay for a product/service.

Question 17

Bubba's Hula Shack bar and bistro has begun giving customers who can show proof that they arrived at the establishment by public transportation a 10 percent discount on their total bill.This is an example of
A)arbitrage.
B)two-part tariff pricing.
C)price discrimination.
D)odd pricing.

Accepted Answer

This is an example of price discrimination as the establishment is offering a discount to customers who arrive by public transportation, presumably to incentivize more environmentally friendly modes of transportation and potentially gain a new customer base. By offering this discount only to one group of customers, Bubba's Hula Shack is engaging in price discrimination.

Question 18

Which of the following is not a requirement for a successful price discrimination strategy?
A)A firm must have market power.
B)The firm must be able to prevent consumers who buy a product at a low price from reselling it to other consumers at a high price.
C)Managers must practice yield management.
D)Some consumers must have greater willingness to pay for the product than other consumers,and the firm must be able to know what prices consumers are willing to pay.

Accepted Answer

Yield management is a technique used by firms to maximize revenue by varying the price of a product or service based on demand. While it can be an effective tool for price discrimination, it is not a requirement for a successful strategy. The other options are requirements for price discrimination; a firm must have market power to set different prices, prevent resale to avoid arbitrage, and know the willingness to pay of different consumers to set appropriate prices.

Question 19

Insurance companies typically charge women lower prices than men for automobile insurance.Is this an example of price discrimination?
A)No,because,on average,women have better driving records than men and the costs of insuring men are greater than the costs of insuring women.
B)Yes,because the costs of selling insurance to men and women are the same.
C)Yes,because insurance companies can prevent arbitrage;that is,women cannot transfer their insurance coverage to men.
D)No,because there are too many insurance companies for any one company to have market power.A firm must possess market power in order to practice price discrimination.

Accepted Answer

Insurance companies base their prices on risk assessment, and on average, women have better driving records than men. This means that statistically, insuring women is less risky and therefore less costly, justifying the lower prices. This is not an example of price discrimination as the pricing is based on legitimate risk factors.

Question 20

College students and faculty members have a more elastic demand than the general public for Apple's iMac desktop computers.From this we can conclude that
A)Apple will charge college students and faculty members higher prices than it charges the general public.
B)Apple will charge college students and faculty members lower prices than it charges the general public.
C)the general public will earn arbitrage profits by buying iMac desktop computers from Apple and reselling them to college students and faculty members.
D)Apple will earn economic profits from the computers it sells to the general public but will break even on the computers it sells to college students and faculty members.

Accepted Answer

If a group has a more elastic demand, it means that they are more sensitive to changes in price. Therefore, if Apple wants to sell iMac desktop computers to college students and faculty members, they will need to charge lower prices to incentivize them to buy. If Apple were to charge higher prices to this group, they may lose customers to competitors or alternatives. Therefore, option B is the best choice.

Quiz 16: Pricing Strategy

Which of the following is a reason why a firm would not engage in price discrimination?

If a firm knew every consumer's willingness to pay and could prevent arbitrage it could charge every consumer a different price.This practice is known as

In which market structure is it not possible to practice price discrimination?

Price discrimination is the practice of

Which of the following is necessary in order for a firm to successfully practice price discrimination?

Price discrimination is a rational strategy for a profit-maximizing firm when

The prices college students and faculty members pay for Apple computers are lower than the prices Apple charges on its Web site and in retail stores.Apple charges lower prices to college students and faculty members because

A price-discriminating firm charges the highest price to

One reason why airlines charge business travelers and leisure travelers different prices is

Which of the following is not an example of price discrimination?

Consumers who will be more likely to buy goods in outlet malls at a lower price,while consumers who will be more willing to pay full price in regular stores.

If Mort's House of Flowers sells one dozen roses to different customers at different prices,economists would consider this an example of

Which of the following is not a requirement for a successful price discrimination strategy?

Perfect price discrimination is also known as

Bubba's Hula Shack bar and bistro has begun giving customers who can show proof that they arrived at the establishment by public transportation a 10 percent discount on their total bill.This is an example of

Which of the following is not a requirement for a successful price discrimination strategy?

Insurance companies typically charge women lower prices than men for automobile insurance.Is this an example of price discrimination?

College students and faculty members have a more elastic demand than the general public for Apple's iMac desktop computers.From this we can conclude that